According to recent estimates, 15 million U.S. households have no active banking relationship. Among these “unbanked” or “under-banked” consumers, “prepaid” or “stored Value” debit cards have become an increasingly popular payment vehicle. While historically the prepaid debit card market was more frequently used by the “unbanked” or “under-banked”, more and more consumers who have traditional banking relationships are also enrolling in prepaid debit card programs.
Prepaid debit “cardholders” enjoy the benefits of using a payment card without the need to establish an individual, personal bank account at a financial institution. These cards are typically funded with an amount of money provided by the consumer prior to use. Once the money has been “loaded” or credited to the card, cardholders can then withdraw their funds at an ATM, or use the card to make purchases at participating merchant locations.
Until now, the maximum amount available to be spent or otherwise used on a prepaid debit card would be determined by the amount the cardholder has loaded onto the card account. If the cardholder attempted to withdraw or spend more money than was present within the balance of his card account his transactions would be denied for “insufficient funds,” similar to the process of a checking account.
The present invention defines a product that is unique in the payment industry: A prepaid debit card with overdraft capabilities. This product enables qualified cardholders to access additional funds beyond those currently available within their card accounts. The decision to authorize an overdraft transaction, as well as the available amount of the overdraft, is made by, for example, the core processor in a real-time, per-card, per transaction environment. A core processor is the primary processor of the transactions. A bank may be financially responsible for accounts and transactions, but they may sub-contract to a processor to manage the transactions for them.
The present invention's overdraft privilege is a unique product offered by, for example, a core processor (as an agent of the issuers) that distinguishes the inventor's prepaid debit cards from other prepaid card products.
In the typical prepaid debit card environment an overdrawn account can reflect a “negative balance”. The associations, for example MasterCard, allow “floor limits” at the point of sale, where merchants are able to accept purchases made using a network branded card product without obtaining prior authorization from the processor in real-time for a predetermined amount, allowing cardholders to periodically overdraw the balance of their card account, The amount of the floor limit is based upon the Merchant Category Code (“MCC”) of the merchant location. The issuers and their partners experience losses from cardholders refusing to reimburse the parties for the overdrawn amounts. Although the ability exists to “charge-back” the amount to the merchant if the total value of the transaction falls below the floor limit, a loss will likely be incurred. A traditional issuer would be a financial institution. A non-traditional issuer could be a mall who extends credit or value to a “closed-loop” prepaid card and does not require a traditional bank as a backer. An agent of an issuer is a delegate of a financial institution given authority by that institution to conduct business on their behalf.
The present invention addresses these problems and helps to reduce these losses when a cardholder agrees to participate in the Overdraft Privilege when it is available on their prepaid debit card account. The total available amount of the overdraft privilege is calculated on an individual card basis, at the time of transaction, by utilizing a scoring method and a real-time decision making process that considers criteria such as the card account's transaction history, average card balance, number of recent overdrafts, and other available criteria. The account will reflect a negative balance until the overdraft amount and fees are automatically repaid with the next deposit.